SHANGHAI POPULATION TRENDS: RETIREE NEEDS CONTINUE TO BURDEN

UNCLAS SECTION 01 OF 04 SHANGHAI 000071 SIPDIS SENSITIVE SIPDIS STATE FOR EAP/CM HHS FOR ELVANDER/BHAT DOL FOR INTL LABOR AFFAIRS- ZHAO LI E.O. 12958: N/A TAGS: ELAB PGOV SOCI CH SUBJECT: SHANGHAI POPULATION TRENDS: RETIREE NEEDS CONTINUE TO BURDEN GOVERNMENT REF: A. A) 05 SHANGHAI 1129 ¶B. B) 05 SHANGHAI 1051 ¶C. C) 05 SHANGHAI 1076 ¶D. D) 06 BEIJING 18534 (SBU) Sensitive but Unclassified- Please protect accordingly. Not for dissemination outside of USG channels. ¶1. (SBU) Summary: During a series of meetings with Congenoffs over the last three months, Shanghai population experts agreed that Shanghai continued to be a rapidly-aging city that faced problems of pension obligations and services to the elderly. They also noted that Shanghai had reversed its decade-long trend of negative population growth in 2005 and one academic believed this was the direct result of the local government's relaxation of the one-child policy in April 2004. According to Academics, Shanghai's rapidly aging society had strained the individual retirement accounts and social pools created by the government to provide for the elderly, and that they continued to overburden the health care system. To address these problems, the Shanghai government has moved rapidly to build more retirement homes and provide training to caretakers. Contacts had differing views on the attitude of the younger generation towards the elderly. One academic said that the younger generation had already accepted the notion that the government would not be able to provide as many benefits for them and did not mind that the government allocated so much money to care for the elderly. Other contacts, many of whom are in their late 20's, were resentful that they had to contribute so much money to the social security system with little hope that they would receive support from the government when they retire. End Summary. -------------- Shanghai's Increasing Population -------------- ¶2. (SBU) According to the Shanghai Statistics Bureau (SSB) website, the total Chinese population of Shanghai by the end of 2005 was 19.21 million. (Note: SSB has not yet posted figures for 2006. End note.) Of the 19.21 million, 13.6 million were officially registered citizens, 4.38 million were migrants who lived in Shanghai for more than six months and 1.43 million were migrants who lived in Shanghai for less than six months. The total population does not include the 200,000 Shanghai citizens who lived abroad last year. In meetings with Congenoffs earlier in the fall, Shanghai Academy of Social Sciences Institute of Population and Development Studies Associate Professor Zhang Henian said the number of migrants living in Shanghai was likely higher since the registration system (hukuo) no longer served as an effective deterrent to domestic migration. He explained that in the past benefits were linked to one's registration and many migrants were reluctant to move and risk losing their benefits. However, over time benefits had become de-linked from the registration system and as a result, migrants were now less concerned about registration which made it more difficult to track domestic migration. ¶3. (SBU) SSB figures also indicated that Shanghai's 2005 natural growth rate (births minus deaths divided by the average population) increased slightly for the first time since 1993. Fudan University School of Social Development and Public Policy Dean Peng Xizhe told Congenoffs that this change was the direct result of the local government's recent amendments to the one-child policy. According to Peng, the Shanghai government introduced eleven exceptions to the one-child policy in April 2004 (reftel A),allowing more couples to have a second child. For example, the 2004 Shanghai regulations now allowed a husband and wife who were both only children to have two children. Peng said that since China's first generation of only children (born in 1976) had recently married and started having children, he expected this initial increase in the natural growth rate to be the start of a gradual upward trend. Peng noted that the Total Fertility Rate (the average number of children that a woman in a given population gives birth to during her lifetime) SHANGHAI 00000071 002 OF 004 in Shanghai increased from about 0.7 in 2004 to about 0.85 in ¶2005. Peng did not expect any further modifications to Shanghai's one-child policy before the next five year plan in ¶2012. In conversations over the course of the fall, Shanghai Academy of Social Sciences Executive Vice President Zuo Xuejin agreed with Peng's assessment that there would be no more family planning policy changes in the immediate future. -------------- Aging Population Trend Continues -------------- ¶4. (U) While the number of births seems to have increased, Shanghai continues to be a rapidly-aging society (reftel B). According to Jiaotong University Associate Professor Zhang Xiaoyi of the 13.6 million registered citizens in Shanghai at the end of 2005, 19.58 percent (approximately 2.66 million citizens) were over the age of 60. In contrast, for the country as a whole, only 11 percent of the population was over the age of 60 (in China, most men retire at age 60 and most women retire at age 55). Zhang predicted that the elderly in Shanghai would increase by about 100,000 citizens per year. Zuo added that China's population was expected to peak in the year 2030 (when approximately one third of the national population would be over the age of 60). In contrast, he said that India's population would not peak until the year 2070. -------------- -------------- Strains on Individual Retirement Accounts and the Social Pool -------------- -------------- ¶5. (U) Contacts also agreed that Shanghai's rapidly-aging population posed financial challenges for the local government (reftel C). Since 1949, old-age or pension insurance had been a government or work-unit responsibility. But as the proportion of retirees to working people increased in China, the country started moving from a pay-as-you-go pension system (where today's workers pay for today's retirees) to a system of private accounts (where today's workers pay for their own future retirement). According to Zhang Xiaoyi, individual retirement accounts (also called personal retirement accounts or PRAs) were introduced in 1997. Individual employees saved about 8 percent of their salary in the PRA. The employer put in another 3 percent of the employee's salary to add to the PRA. The employer also contributed about 20 percent of the company's total wage bill to the social pool; contributions from companies to the social pool were amalgamated and dispensed across a wider population (reftel D). These required contribution percentages varied somewhat by geographic location, as they were set by local and provincial governments. ¶6. (SBU) Zhang Xiaoyi added that it was common for social pools to run deficits. She said that due to the aging population in China, there were so many elderly to support that retirement distributions outweighed pension fund collections. To address this problem, the central government established the National Social Security Fund in 2000 to bail out provincial pension deficits. Both Zhang and Zuo noted that the central government had injected money into the pension systems of poor northeastern and western provinces in particular. In fact, all of the experts confirmed that Shanghai is the only province or administrative region that has never borrowed money from the central government to meet its pension requirements. Previously, local governments were simply borrowing money from individual PRAs to make up for the deficits in their social pools. As a result, Zhang Xiaoyi said that most PRAs were actually empty "black boxes" (reftel D). According to Peng Xizhe, the deficit in the PRAs was so massive that it would require 1-2% of the national GDP to bring the accounts current. SHANGHAI 00000071 003 OF 004 ¶7. (U) Zhang and Zuo said that the central government had recently encouraged provincial governments to start shifting the 3 percent employer contribution from the PRA to the social pool (to help make up for social pool deficits). Zuo disagreed with this strategy because it provided less incentive for individuals to participate in the pension system. According to Zhang, the Shanghai government had not yet adopted this recommendation. In October 2006, Shanghai Labor and Social Security Bureau Deputy Director Mao Shiti confirmed that in Shanghai, the 3 percent employer contribution still went to the personal account. Individual contributions remained at 8 percent and Shanghai employers paid 19 percent of their total wage bill to the social pool. However, Mao said that in September 2006, China's State Council directed Shanghai to replenish its empty personal retirement accounts. ¶8. (U) All of our contacts agreed that the lack of a comprehensive health care system that provided adequate health care for the elderly has put further strain on the system. By all accounts, most elderly Shanghai residents overused the existing health care system, many going to clinics as often as once a week for simple ailments due to their lack of personal financial security. (Septel to follow). -------------- -------------- -------------- Caring for the Elderly - Shanghai Moving Faster than Expected to Address Needs -------------- -------------- -------------- ¶9. (U) Although the Shanghai government has moved quickly to address the problems created by its large elderly population, the pressures are monumental. As noted in reftel B, by the end of 2003 there were 444 old age homes in Shanghai with a total of 37,000 beds to accommodate less than seven percent of the elderly population in need. According to Shanghai Research Center on Aging Director Xu Qihua and Shanghai Civil Affairs Bureau Division of Old-Age Work Vice Chief Wang Zhenhua during a meeting with Poloff in September 2006, Shanghai added 10,000 beds in 2005 and Shanghai planned to continue to add 10,000 beds every year for the next five years. (Note: The government's work report to the Shanghai Municipal People's Congress released on January 28, 2007 reported that Shanghai added 10,200 beds in ¶2006. End note.) Xu acknowledged that 90% of this rapid increase was due to favorable tax policies that encouraged private sector construction of homes for the elderly. Peng Xizhe said that with 2.6 million elderly people in Shanghai, it would take more than 200 years of building beds at the rate of 10,000 beds per year to catch up to current demand - an impossible task. Peng last year advised the Shanghai government to look into the idea of reverse mortgages: retirees transfer official ownership of their homes to a bank, which then provides them with a monthly living stipend while the retiree lives in the home. Peng said that currently this idea had not taken off because Chinese banks were not familiar enough with this vehicle to offer the service. He also mentioned that traditional values emphasizing property ownership meant that some elderly would not be amenable to the idea. ¶10. (U) Wang said the Shanghai government hoped most of the elderly could be taken care of in their own homes. The government provided 80 million RMB thus far to non-profit organizations who trained workers and volunteers to visit and care for the elderly in their homes. In addition, Shanghai installed emergency aid calling systems in the homes of 60,000 retirees so that dispatch centers could quickly send trained professionals to those who call. The government also distributed bracelets embedded with a global positioning system to about 20,000 elderly people to use when calling for help. -------------- -------------- SHANGHAI 00000071 004 OF 004 -------------- Great Expectations from the Elderly, Divergent Expectations from the Young -------------- -------------- -------------- ¶11. (SBU) Zhang Xiaoyi said that older people believed that the government should take care of them since this was a promise of the planned economic system. At the same time, Zhang acknowledged that because of its large population, China simply could not be a welfare state that provided services to all individuals. Zhang felt that the younger generation had already accepted the notion that the government could not provide as many benefits for them. In addition, younger people in Shanghai did not mind the government allocating so much money to pay for the benefits and care of current retirees. The young recognized that if the government did not pay for the older generation, they would need to provide more financial support to care for their elderly relatives. In contrast, other officials, many of whom were in their late 20's, indicated to Congenoffs that they were resentful of the lack of return on their relatively high contributions. Gong Bo from the Shanghai Medical Insurance Bureau indicated that he would never admit to someone older that he was resentful, but he felt it was not fair that he contributed so much money to the system with little hope of recouping the benefits. ¶12. (SBU) Comment: In every meeting the population experts expressed confidence that the government, both the Shanghai local government and the central government, appreciated the seriousness of the issue and was open to creative solutions. Many of the experts Congenoffs met with have been called to Beijing numerous times in recent months for policy meetings and indicated that the government has fully supported them in foreign travel and meetings with foreign experts. All of the experts conceded that the challenges facing China, and specifically Shanghai, have more unique characteristics than similar characteristics with other aging societies and solutions will likely have to come from within. End Comment. JARRETT